Changing mood

The informal mechanism of textile trade in Varanasi often means that traders pay GST on goods they have sold on credit.

A handloom workshop in Varanasi. The traditional Banarasi and Chanderi sarees require much skillful work using silk and cotton yarn, and hundreds of thousands of people are associated with the industry.

“ Sarkar ne toh vyapaariyon ko munshi bana diya hai ” (the government has turned traders into accountants), quips Jagdish Shah, sitting in his multi-storey office in Chowk, Varanasi’s busiest market.

It is an early November evening, and the first anniversary of demonetisation is only a few days away. Shah, who is among a handful of Varanasi’s big textile traders, speaks of the impact of the Union government’s two major economic decisions of the past one year—demonetisation and Goods and Services Tax (GST)—on the business community in Prime Minister Narendra Modi’s parliamentary constituency. His comment, made partly in a tone of resignation, is a specific reference to the impact of GST on textile traders in Varanasi, which is a large group comprising, by some accounts, nearly half a million people involved directly and indirectly. He explains how textile traders, who were so far outside the purview of Central taxes and not very conversant with the requirements of keeping detailed formal accounts with the government because of the informal nature of their business, are now caught up in the elaborate web of filing GST returns.

Like a significant number of businesspersons across the country, Shah sees both demonetisation and GST as having adversely impacted trade and business sentiment. He describes the aftermath and still persisting consequences of demonetisation: “In the initial two-three months [after demonetisation], we were facing a lot of difficulties. But its lasting impact, to which GST added further push, has been seen in the decline in working capital and business activity in the market. This has caused a decline in turnovers and general incomes [of traders].” That is a significantly candid observation because Shah is also the president of the Banarsi Vastra Udyog Sangh, an influential association of textile traders who openly back Modi and the Bharatiya Janata Party. Its former president, Ashok Dhawan, was Modi’s election manager in 2014.

Post-demonetisation, however, the mood of this influential group and, indeed, the wider trading community of Varanasi, which also backs Modi, began changing steadily. By June this year, this community began expressing its grievances openly. In July, when GST was introduced, textile traders protested through a nationwide strike. “The strike was in support of our fellow traders in Surat, who were also protesting against the imposition of GST,” said Rajan Behal, general secretary of the Banarsi Vastra Udyog Sangh. He added that a significant number of those protesting were the makers of the famed Banarsi sari, a measure of how serious the problem was.

These protests have also attracted support in significant numbers within the community because the adverse economic impact of the slowdown in trade increases as one looks further down the hierarchy, as first-hand accounts from traders across the spectrum bear out.

According to Behal, only about 10 per cent of the city’s textile traders are estimated to have annual turnovers of above Rs.5 crore. A relatively larger number, which includes weavers, register an annual turnover between Rs.1.5 crore and Rs.5 crore, while most others fall way short of the Rs.1 crore mark. For perspective, profits from the turnovers in this trade are estimated to be in the range of only 10-15 per cent. With the introduction of GST, profits have dipped.

While most of these numbers are back-of-the-envelope calculations, Behal said that the overwhelming majority of traders were adversely affected by GST notwithstanding some changes made by the Centre in the rates and the frequency of filing returns, after protests. “At present, about 60 per cent of business is affected by GST. This is an ancestral trade which still operates on credit, trust, informal bookkeeping and such traditional practices. The majority of the small traders are unlettered, so they are unaware of the complex returns-filing processes. When you introduce a new tax on this trading community, it is obvious that the impact is going to be adverse. We have had to invest money in setting up infrastructure for GST. The government should provide soft loans at zero interest or a maximum of 4 per cent interest for this purpose,” he said.

In mentioning small and micro traders, Behal is talking in particular about weavers. Chand Mohammad Aazam, a weaver and resident of Varanasi’s Jaitpura locality, which is abuzz round the clock with the sound of power looms and handlooms in homes, agrees with him: “Nobody is able to understand what this [GST] is. They should have imposed GST on the cloth, not on the yarn because everyone in the entire chain of manufacturing cloth has become adversely affected now. There is less work in the market, and so money changing hands is also less,” he said. He explained that in the textile trade, transactions were done over three to six months’ credit, whereas GST filings had to be done each month, except by those with an annual turnover below Rs.1.5 crore. So traders and weavers find themselves in a situation where they have to pay taxes on goods which they have sold on credit and payments are not yet realised. “I have paid Rs.3 lakh GST so far, but my payments are yet to be received,” he rued.

This will subsequently put smaller and micro weavers out of business. Steadily, this appears to be already happening. According to Mukhtar Ahmed Mahato, a resident of Madanpura locality, in the past six months alone around 35,000 small and micro weavers had left Varanasi for other cities. He said small Muslim weavers had found some work in Gurpalli area of Bengaluru and Mithikhadi area of Surat city. Official numbers are hard to come by, but such anecdotal references abound in the city which has historically been known for its rich textile tradition.

Behal recalled how previous attempts at taxing the trade were successfully resisted. “There have been multiple attempts in the past in Uttar Pradesh to impose tax on our trade, but all governments in the State had to withdraw those decisions. In fact, even during Atalji’s [Atal Bihari Vajpayee] time, they decided to impose tax on us, but when we met and explained to him why it should be withdrawn, Atalji’s government took back the decision. But this government is just so stubborn that it doesn’t want to withdraw Modi tax,” lamented Behal.